Penalty, Forfeiture of deposit and Liquidated damages not liable to Service Tax

Last updated: 19 February 2021

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Quick Summary

The CESTAT has ruled that penalties, forfeited earnest money deposits, and liquidated damages are not subject to Service Tax. The tribunal found that these payments are not 'consideration' for a 'declared service' of tolerating an act, as defined under the Finance Act. Instead, they are viewed as safeguards for commercial interests arising from breaches of contract, rather than the intended purpose of the original agreements.

Court :
CESTAT, New Delhi

Brief :
The Hon'ble CESTAT, New Delhi in M/s. South Eastern Coalfields Ltd. v. Commissioner of Central Excise and Service Tax [Service Tax Appeal No. 50567 of 2019, decided on December 22, 2020]set aside the order holding that the amount received towards penalty, earnest money deposit forfeiture and liquidated damages would be tantamount to a consideration, for which service tax would be levied, passed by the Commissioner and held that, it is not possible to sustain the view taken by the Commissioner.

Citation :
Service Tax Appeal No. 50567 of 2019, decided on December 22, 2020

Daily Limit Reached